02/21/2018

“Even though you’re busy, take a moment to fill out your beneficiary forms.”

Regardless of your income or net worth, there’s one estate planning task you should do right now: check the beneficiary designations for your life insurance policies, bank accounts, brokerage firm accounts, and retirement accounts. You should update these forms as necessary. If you don’t, the consequences can be dire.

MarketWatch’s article, “Make this estate planning move right now: Check your beneficiary designations,” explains how the Fifth Circuit Court of Appeals reversed the trial court by finding that a pension plan administrator didn’t abuse her discretion in determining that a deceased plan participant’s stepsons weren’t considered his “children” under the terms of the plan. As a result, the deceased participant’s siblings, not his stepsons, were entitled to inherit the plan benefits in Herring v. Campbell (5th Circuit 2012).

In that case, John Hunter died in 2005. He had retired from Marathon Oil, where he was a participant in the company pension plan, which let him name a primary and secondary beneficiary. Hunter designated his wife as the primary beneficiary but didn’t designate any secondary or “contingent” beneficiary. After his wife died, he didn’t update the document to add a new primary beneficiary.

Under the plan’s terms, when a participant died without designating a valid beneficiary, the deceased participant’s benefits were distributed in the following order of priority: (1) surviving spouse, (2) surviving children, (3) surviving parents, (4) surviving brothers and sisters (siblings), and finally (5) participant’s estate.

After he died, the plan administrator rejected the claim that Hunter’s two stepsons would qualify as “children” who’d be entitled to all the benefits. Instead, the plan administrator distributed the benefits of more than $300,000 to Hunter’s six siblings.

The stepsons sued for the benefits, claiming that they were, in fact, Hunter’s children because, by his actions, he’d “equitably adopted” them. The evidence seemed to indicate that he probably did mean to leave his benefits to the stepsons, so the trial court concluded that the plan administrator abused her discretion by failing to consider the stepsons’ equitable adoption claim. But the plan administrator appealed to the Fifth Circuit.

The Fifth Circuit agreed with the administrator’s interpretation that the term “children,” and for purposes of the plan, it meant biological or legally adopted children as opposed to un-adopted stepchildren. The District Court’s decision was reversed, and Hunter’s pension benefits went to his six siblings.

Typically, whoever’s named on the most-recent beneficiary form will get the money automatically, if you die. This brings up another advantage of designating individual beneficiaries—it can help you avoid probate, because the money goes directly to the named beneficiaries by “operation of law.”

Doing a beneficiary checkup and making any needed changes will take just a few minutes. Don’t wait, or it could be too late, like it was for Mr. Hunter’s stepsons.

It's also a good idea to review and update your beneficiary designations after a divorce to prevent your now ex-spouse from unintentionally inheriting.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/20/2018

“With wealth for millennials set to double in the next 20 years, it’s time to get over the awkwardness and have the conversation now.”

When is a good time to discuss your inheritance, taxes, and estate planning with your parents? How about never! However, by the same token, screaming at your sister in a fight over Mom’s Hummel figurines isn’t a pleasant thought either.

No matter how you look at it, this conversation will be uncomfortable. This is because it’s based on one ominous certainty: that the people we love are going to die.

However, the downside is that the average age at which most people will benefit is 61. The report also mentions that this huge transfer of wealth will further solidify societal inequality in our lifetimes. People usually marry those of a similar financial background. More than 80% of millennials who already own their home have parents who are homeowners. Compare that to 50% of non-home owning millennials who have parents who don’t own their homes.

For many individuals, this information won’t make much difference. The report stipulated that about 33% will have no property wealth to inherit, and those who do will discover that it arrives much too late to solve life’s biggest financial burdens, like the kids and the home mortgage.

Even so, it’s wise to discuss inheritance with your family, while the older generation is still living. This will decrease the risk of post-funeral family battles and establish definition and clarity regarding the parent’s wishes and plans. Yes, it’s awkward, but it’s the smart move.

Finances are frequently a forbidden subject in families. Approaching the topic of inheritance in the wrong way can be seen as disrespectful and pushy at best. At its worst, it can ruin relationships.

However, research like that from the Resolution Foundation may help start important discussions about inheritance now, before it’s too late.

If you are receiving government needs based benefits or have a child who receives them, this discussion is important as an inheritance given in the wrong way could cause you, or your child, to lose the benefits.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

The article reminds us that not every aspect of an estate will be addressed quickly, even six months later. This includes questions about how to handle the files on the decedent’s computer or the stuff on his smartphone. His social media accounts may also still be up and running as well as websites and blogs.

Many people who think they've X’ed all of the right boxes on their estate-planning to-do lists, may have overlooked the proper management and orderly transfer of their digital assets after they die or become disabled. Digital estate planning includes all of your digital possessions, such as computers and smartphones, stored data (on your devices or in the cloud), and online accounts like Facebook and LinkedIn. You should include your digital assets in your estate plan. You should state who should get the data and if there are things you don't want others to have. Here are some first steps:

First, conduct a digital fire drill. This will jog your memory about which digital assets you deem important. Consider the following questions:

What valuable items would you lose, if your PC or other device was lost or stolen?

If you’re in an accident, would your family be able to access your significant digital information?

If you died today, to what digital property would you like your loved ones to have access?

Next, make an inventory of the digital assets you named during the fire drill and include user names and passwords. Your digital inventory may include digital devices, data-storage devices or media, electronically stored data, social media accounts, domain names and intellectual property in electronic format. Keep this document safe.

You may want to keep an electronic list of digital property and passwords, protected with strong encryption and a strong password and backed up in the cloud (not on your computer and smartphone). Create a master password for the electronic list, store the password in a safe deposit box or home safe and give your fiduciary instructions on accessing it.

Remember to back up all your data.

Finally, formalize your digital estate plan. You should designate a digital executor—someone who can ensure that your digital assets are managed or disposed of in accordance with your wishes after you pass away. Depending on the type of property, the fiduciary may also need special powers and authorizations to deal with specific assets. You should also mention specific digital assets in your will.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

New Jersey repealed its estate tax as of January 1, 2018, but it still has an inheritance tax. The inheritance tax is imposed on transfers of assets to certain classes of beneficiaries who are beyond the immediate family. This includes nieces and nephews. The inheritance tax rate on transfers to nieces and nephews is 15% in New Jersey. There is an exception, if the bequest is less than $500. In that case, there’s no tax. Therefore, if an aunt or uncle leaves a niece or nephew $500 or more, there will be a tax on the entire amount. It's important to know that the tax is imposed on every transfer, regardless whether it’s probate or non-probate. A probate transfer is an asset that passes under a will, like a family home or an auto the decedent owns in his or her name alone. A non-probate transfer is something that passes outside of your will, like a joint checking account or a retirement accounts.

ypically, the person receiving the asset is liable for the tax. This can be a troublesome issue for them when the asset they’re receiving isn’t liquid—like real estate. In that case, the beneficiary might have to sell (or liquidate) the property to raise the money to pay the tax. As an example, if an aunt or uncle leaves a house worth $300,000 to a niece or nephew, they’d be on the hook for inheritance tax. That tax is due just eight months after the date of death.

One easy solution to the issue of the inheritance tax is make a provision in the aunt or uncle’s will that all taxes are to be paid from the residue of their estate. This is pretty common. It means that all of the inheritance tax would be paid before any assets are distributed to the beneficiaries. A daughter might receive less than what she might otherwise inherit, but this would have the effect of treating all three beneficiaries the same. The aunt or uncle will need to be certain they have enough assets flowing through their estate to pay the tax. That may require some planning, so speak with a qualified estate planning attorney.

In California there is no estate or inheritance tax, just federal estate tax due for estates over $11,200,000 (as of 2018). But there are other taxes to consider including property tax adjustments when leaving assets to someone other a child or parent. However, if a person owns assets in more than one state, such as real property, the separate laws of each state apply to the assets in the state.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/17/2018

“The idea of planning a funeral is generally not at the top of anyone's "to do" list. It's a job that almost always falls to the spouse, children, or close friend of a deceased. Expressing your preferences or actually making the formal arrangements can truly be a gift to your family and friends.”

It’s not uncommon for an estate planning attorney to get a phone call from a personal representative of the estate of a recently departed, asking if the attorney has any documentation about the decedent’s wishes for a memorial service. Unless some sound planning took place, chances are there are no instructions.

Inside Indiana Business’ recent article, “The Gift of Pre-Planning a Funeral” explains that if your wishes are documented, it can help eliminate your family’s stress during a highly emotional time. A 2017 study by the National Funeral Directors Association found that while 66% of Americans believe that pre-planning is important, only 21.4% had actually completed the exercise.

Pre-planning does not have to be complicated. It can be as simple as a written statement of your desires or a legal Funeral Planning Declaration. All of our estate plans have a section for the client to complete their memorial instructions to detail the type of music, scripture, notices, flowers, etc., during the service as well as burial/cremation preference.

There are several reasons why pre-planning makes good sense. Let’s take a look at them:

Decreasing stress. Pre-planning can eliminate some of the stress on family or friends. It also can avoid emotionally charged conflicts right after your passing. Spend some time now to make your preferences known or make the actual arrangements.

Avoid spending excessively. If you pre-plan, you can select appropriately. Your family may not consider the cost as they decide right after your passing—a time when they can barely think. Some may mistakenly feel the amount spent shows the amount of respect and love they have for you. Either way, it often means overspending.

Specify detailed instructions. You can provide some peace to your family by knowing that your final wishes will be carried out. You might consider things like burial or cremation, your attire, the location, service participants, music, readings, flowers and photographs. Some feel that this level of detail is unnecessary, but if you don’t specify your wishes, someone else will make these decisions.

Reimbursement of family expenses. If you want to reimburse long-distance family members and friends for their travel, you can add that into your pre-planning documentation. Talk to your attorney about including this provision in your will.

You should also think about how you’ll pay for your funeral expenses. Perhaps you can designate funds in your savings or investment account or use life insurance proceeds. By pre-paying, you can lock-in today's funeral prices but be sure your funds are safe. Ask if the sales person is an agent of your funeral home and how and where your money will be held.

Once you decide on the details of your pre-planning, share the details with your family. Pre-planning your funeral is an act of kindness for your family and friends. It’s also a chance to express your personal desires and to potentially avoid issues that can arise after your death.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/16/2018

“A proper estate plan is critical to ensuring that the success you’ve worked so hard to build over your lifetime, is passed on in a way that benefits your family and supports the values you want to leave behind when you’re gone.”

Planning for the transfer of wealth to younger generations is a challenging process for successful families. Many want to leave their children enough so they can do anything, but not so much that they can do nothing. What’s “enough” or “too much” is unique to each family.

BizWest ‘s recent article, “To Trustee or not to Trustee,” says that many families of wealth choose to leave some, or all, of their wealth to future generations in trusts. Trusts can be created in many ways and can specify exactly how and when the assets are to be passed to the beneficiaries. If you go with a trust, you’ll need to select a trustee. A trustee is a person, corporate trustee, or professional fiduciary that you designate with the task of overseeing the administration of your trust after you pass away or are incapacitated. They’re tasked with making decisions about distributions to your beneficiaries and ensuring they meet the directions defined in your trust. It can be a challenging job, so it is crucial to select the right trustee to carry out your wishes.

Opting for a family member or friend to serve as your trustee is common, because the relationship is personal, and they may be well-suited to understanding the needs of the beneficiaries. However, most individual trustees don’t have the experience, time, or financial or business background to manage the tax and administrative duties associated with a modern trust. It can also change the personal relationship between the individual trustee and the beneficiary.

If you go with a corporate trustee, like a bank, it can help you sidestep pitfalls often associated with an individual trustee. That’s because corporate trustees have expertise that individual trustees often don’t possess. A corporate trustee must also comply with internal audits and is scrutinized by both federal and state regulatory agencies. That ensures protection of the trust beneficiaries. There is a cost associated with a corporate trustee though.

For some, using an individual trustee and a corporate trustee may be a good solution. Acting in concert, the individual trustee can bring the knowledge of the personal relationships, and the corporate trustee can apply the safeguards needed for making sound investment and administrative decisions.

Regardless of the direction you take, here are three thoughts which you should consider when evaluating which trustee is right for you and your family:

Trustees must be diplomatic. A trustee must work with beneficiaries of vastly different character and levels of sophistication including: children, grandchildren, friends, and other beneficiaries who all have different backgrounds, expectations and goals. An individual trustee must weigh the needs of the individual trust beneficiaries versus the terms of the trust. It is critical for the trustee to recognize the differences between beneficiaries and administer the trust in a way that both supports their needs and satisfies the intent of the trust.

Siblings will always fight. One sibling may have a lifelong belief that “Mom always liked you best.” It’s important to explain to your trustee and your beneficiaries what will occur when you’re gone, before you’re actually gone. This can make a huge difference in preserving family harmony. It may seem uncomfortable, but it’s a gift to your family that’s far more valuable than money.

What you can expect. Working with a beneficiary who depends substantially on trust distributions for support can be a challenge for any trustee. A trustee has to be prepared to be the “bad guy”, when beneficiary behavior runs up against prudent trust administration. Someone has to be the one to say no.

As you think about what type of trustee to use, you still need to work with an experienced estate planning attorney, who will ensure that your trust is set up properly.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/15/2018

“Having no heirs or surviving spouse, can make estate-planning decisions more difficult.”

Some people have a somewhat unique estate planning challenge: they’re childless and not sure what should happen to the assets they leave behind or whom to appoint as their proxy decision-maker.

CNBC’s recent article, “Planning your estate when you've got no children or heirs,” says there may be no close family members, resulting in questions of who they should leave their estate to. These folks also often don't know who to name as executor of their will or who to trust to make decisions for them, in the event that they become incapacitated.

Studies show that most childless people don’t make out a will. The issue with having no will (or “dying intestate”) is that the state will decide who gets your assets. Therefore, it is recommended that for those with no family ties or close friends, to focus on your interests and tie them to charitable giving. You can immediately establish your legacy and enjoy it, while still living.

Another tough decision is choosing someone to have medical power of attorney, which allows that person to make important health-care decisions if you’re unable to do so. Usually married couples will name each other as their health-car agent, but after the death of one spouse, the other with no children has the challenge of naming someone else. The same is true for childless singles who never married.

Likewise, the advanced health care directive details your wishes if you’re on life support or suffer from a terminal illness. It also instructs your health care agent's decision making. You also should give someone durable power of attorney to act as your agent, if you’re unable to handle your finances. You can designate different people to handle healthcare and financial decisions.

You also need to designate someone to be the executor for your estate. This can be challenging for those without any family. The executor or “personal representative” has the legal authority to handle your estate. It should be someone you trust and someone who has the bandwidth to take on this responsibility. There are also professional fiduciaries who will assist you.

If you can’t think of a person to name, your bank's trust division may be willing to serve as executor and trustee. You may also consider setting up a trust. Remember that some assets have beneficiaries, like 401(k) plans and life insurance policies. These accounts don’t pass through the will.

Doing something is better than doing nothing. Speak with an experienced estate planning attorney to get help with making these decisions and creating a plan.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/14/2018

“Where do you start? How much do you contribute? What do you do, if there's no company match? Should you take the Roth option? There's a lot to consider with this important retirement asset.”

As you develop your financial and estate plans, you should consider integrating 401(k) accounts into an overall retirement strategy. It’s an important part of the process, says Kiplinger in its recent article, “6 Answers to Your 401(k) Questions.”

401(k) s are the largest source of funds that most individuals set aside for retirement. Here are some thoughts on questions you should consider.

How do I enroll? If your employer has a retirement plan, such as a 401(k) or a 403b, your Human Resources department should talk about enrolling when you’re hired. If you’ve been there a while, most companies will hold a group meeting with HR and a representative from the plan sponsor. They will go through the highlights of the plan and help you to enroll. There are a couple of things to bear in mind: figure out the company match and take advantage of it; and if there’s no company match, you may want to look at a personal Roth IRA and IRA contributions, before going with your employer’s retirement plan.

Which one: Roth or Traditional IRA? Some employer retirement plans are offering Roth options, so choosing between traditional or Roth to save for retirement is important. In a traditional 401(k), you’re not getting a tax deduction for your pre-tax contributions, but instead are getting a tax deferral. You’ll eventually pay taxes on the money in these accounts funded with pre-tax dollars, when you take withdrawals in retirement. You’ll pay tax on the pre-tax contributions and all of the gains.

For a Roth, you invest post-tax dollars going into the account and won’t be taxed again. Withdrawals in retirement are tax-free for your contributions and your growth. Therefore, do you want to pay the taxes now (on a Roth) or pay taxes during retirement (with a traditional IRA)? If your plan offers a Roth 401(k), it’s may be wise to put your contributions there because the money will be tax-free after you retire. It also shields your retirement assets from possible future income-tax rate increases. We recommend you discuss your overall financial plan with a financial advisor and your accountant to determine which option is before you.

How much do I contribute? Look at the current IRS contribution limits and the additional contribution limits of your specific company plan. Try to contribute up to the company match in order to max out your employer’s contributions to your retirement savings. You also should consider how much you can afford to contribute based on your monthly budget and cash flow. Once you’ve contributed up to the match, if you’re able to save more for retirement, review your Roth IRA and other tax-free options.

How should I invest? There are many factors to consider. Each person’s situation is different. Consider your age, risk tolerance, investment timeline, other available retirement assets, fees, taxes, and the amount you’re able to contribute, among other factors. A financial advisor can review your options with you based on the factors that are important to you.

When do I change my investments? Most employer sponsored retirement plan participants never make changes to their investment choices after they enroll! Broad exposure to low-cost index funds and ETFs across multiple asset classes typically work for most investors to withstand market swings. However, you shouldn’t disregard your account for years or decades until retirement. Your specific factors, as well as the available investments within your plan, may change with time. Major life events may also necessitate changes in your investment strategy. Get financial advice and think about making annual adjustments to rebalance your allocations, as needed.

When you save for retirement we recommend you start early, be consistent, max out your Roth options first whenever possible and don’t be afraid to ask for help.

Planning for disposition of 401(k) and IRA at death. Often a person's 401(k) plan or IRA is a large part of his or her estate. Who do you leave it to when you die? If you are married, the logical choice is your spouse. However, if you are on a second marriage, you may prefer to leave the asset to your children. This will require consent from your current spouse. You also need to decide whether you will leave the plan outright to your beneficiary or in trust. If the beneficiary is a minor, has special needs, or has addiction issues, you may want to leave it in a trust for the beneficiary. There are various ways to do this to protect the asset and deal with the tax consequences of the distribution. We are happy to walk you through your options.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

It’s not uncommon for conflicts to arise in estate matters between stepmothers and stepchildren, as tensions in blended families can carry over into disputes over an inheritance, beneficiary rights to a trust, or estate property.

Forbes’ recent article, “Stepmothers: The Cause Of So Many Estate Fights,” explains that this stepmother phenomenon in estate disputes starts with the fact that there’s a life expectancy gap in the U.S. between men and women. A man reaching 65 today can expect to live, on average, until 84; a woman turning the same age today can expect to live, on average, until 86. Widowed females also far outnumber widowed males (11.2 million vs. 2.9 million). When these widowed females and males have stepchildren, it is obvious that the number of surviving stepmothers heavily outweighs the number of surviving stepfathers.

It’s not surprising that research shows that only about 20% of adult stepchildren feel close to their stepmoms. Studies also show that stepmothers and their stepchildren don’t grow closer over time.

Inevitably, a large percentage of estates managed by a widowed stepmother with stepchildren heirs winds up in a fight over inheritance rights. Many of these arise after a short-term marriage where the decedent’s marriage was cut short by his death and his long-term estate plan may have been thwarted by undue influence right before his passing.

While a long-term marriage is no guarantee for an amicable estate settlement, they’re more likely to have produced estate plans that balance the welfare of a father’s children with those of his later spouse.

Evidence of wrongdoing may be nuanced. Questions as to the existence or nonexistence of estate planning documents are avoided and personal property disappears or is transferred to the wrong recipients. Family heirlooms might be found in the garbage at the decedent’s house, perhaps as early as the date of death. The family home is locked up, the locks are changed, and no one except the controlling party is allowed access.

Cases that are not resolved with cooler heads will frequently escalate to probate, estate, trust, and property disputes that exemplify the stereotypes surrounding classic battles between stepmothers and their stepchildren. We want your family to get along and your wishes to be fulfilled after you pass. Proper planning can make that happen.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

02/12/2018

“Inherited IRAs and 401(k)s can be a great ve hicle for passing assets from these accounts to non-spousal beneficiaries.”

Inherited individual retirement accounts have been a common way to let non-spousal beneficiaries inherit an IRA account and allow the account to continue to grow on a tax-deferred basis in the future. These rules were changed in 2007 to allow non-spousal beneficiaries of 401(k) and similar defined contribution retirement plans to treat these accounts the same way.

Investopedia’s article, “Inherited IRA and 401(k) Rules Explained,” says spousal beneficiaries of an IRA have the option of taking the account and managing it, as if it was their own. This includes the calculation of required minimum distributions (RMDs). For non-spousal beneficiaries, an inherited IRA account can give them a few options, including the ability to stretch the IRA over time by letting it continue to grow tax-deferred.

IRA account holders who want to leave their accounts to non-spousal beneficiaries should enlist the help of an estate planning attorney who understands the complex rules surrounding these accounts. The account beneficiaries must be careful to ensure they don’t inadvertently trigger a taxable event.

The beneficiaries of an inherited IRA can open an inherited IRA account, taking a distribution (which will be taxable), or disclaiming all or part of the inheritance (causing the funds to pass to other eligible beneficiaries). Traditional IRAs, Roth IRAs, and SEP IRAs can be left to non-spousal beneficiaries in this way. A 2015 rule change says the creditor protection previously afforded an inherited IRA was ruled void by the U.S. Supreme Court. Inherited IRA accounts can’t be commingled with your other IRA accounts, but the beneficiary can name their own beneficiaries upon their death.

The rules for RMDs for inherited IRAs or inherited 401(k)s are based on the age of the original account holder at the time of his or her death. If the account holder wasn’t yet 70½—the age at which RMDs must start—the beneficiary can wait until they reach age 70½ to begin taking RMDs. The required percentages will be based on the IRS table in effect for their age at the time.

If the original account holder had reached age 70½ and was taking RMDs, then the beneficiary must continue taking a distribution each year. However, the RMDs will be based on their age, not the age of the original account holder. As a result, the distribution amounts will be less than those of the original account holders (assuming the beneficiary is younger). This lets him or her to stretch out the account via tax-deferred growth over time.

These rules are complicated, so work with an estate planning attorney to be certain they’re followed to avoid costly errors.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.